2018 (3) TMI 1858 - AT - Income Tax

Validity of reopening of assessment - addition on protective basis - Whether AO has made addition on protective basis which has no relevance with the reasons recorded for reopening of the assessment? - search and seizure operation under section 132 - HELD THAT - AO prior to issuing notice under section 148 has recorded the statement of the assessee and as per para 6 of the assessment order the AO has given the basis of the statement of the assessee wherein the assessee has specifically denied any land transaction as alleged by the AO. The assessee has also denied any relation with M/s. Kalyan Builtmart Pvt. Ltd. or has given any money or loan to the said company. The amount paid through cheque to Shri Madan Mohan Gupta also does not pertain to the year under consideration and therefore when the payment through cheque was at different point of time and is not a payment made to the land owners then on the basis of material which was available before the AO it cannot be said that an income of Rs. 11.59 crores has escaped assessment for the year under consideration. AO while framing the assessment has made an addition on protective basis which itself manifest and established the fact that the reasons to form the belief by the AO for reopening of the assessment is not based on any tangible material to show that the income assessable to tax has escaped assessment. AO has formed the belief only on presumption and not on the basis of material as referred in the reasons. Therefore the reopening of the assessment merely on the basis of suspicion and presumption which is not supported by even the material as referred in the reasons recorded and available with the AO then the reopening of the assessment is not valid and liable to be quashed. We accordingly quash the reopening of the assessment as invalid and consequently the reassessment framed is also set aside being not sustainable. - Decided in favour of assessee. Validity of assessment framed under section 153A read with section 143(3) of the IT Act - HELD THAT - from the seized material there is nothing to indicate or disclose any involvement of the assessee directly or indirectly in the transaction of purchase of the land in question and subsequently the company Shri Kalyan Buildmart Pvt. Ltd. was transferred to Shri Navratan Kothari Shri Vimal Chand Surana HUF and Shri Kaushal Chand Surana. The ownership of the said company was not disputed as owned by Shri Madan Mohan Gupta and his wife and subsequently was transferred to these persons namely Shri Navratan Kothari and others. Even in the transaction of transfer of the said company the role of the assessee was not visible and found much less the purchase and sale of the land in question. Therefore in the absence of any incriminating material which led to disclosure of any undisclosed income belonging to the assessee the AO cannot reassess the income of the assessee more than the income which was assessed on the original return of income. Accordingly we will deal with this issue while considering the ground no. 2 of the assessee s appeal and the ground raised by the revenue in the cross appeal. Addition u/s 68 - When the addition is not based on the seized material then the ld. CIT (A) has no jurisdiction even having concurrence power of the AO to make any addition in the assessment framed under section 153A. Accordingly the addition made by the ld. CIT (A) of Rs. 50, 00, 000/- is not sustainable and according deleted. Issue raised by the revenue in the cross appeal there is no dispute that the AO made only a protective addition in the hands of the assessee and therefore the AO cannot go beyond the assessment order. The revenue is seeking the addition on the basis of the remand report which is not the case of the AO in the assessment passed under section 153A. Therefore applying the same principle of addition without any incriminating material disclosing the income of the assessee we do not find any merit or substance in the appeal filed by the revenue. The same is dismissed. Absence of giving an opportunity to the assessee to cross examine - on money paid by the assessee - HELD THAT - In the case in hand the transactions recorded in the seized documents clearly pertains to the purchase of land in the name of the company and therefore the seized documents do not reveal who has paid on money in the said transaction. The AO has held that the on money is paid by the assessee whereas the transaction was in the name of the company M/s. Hemang Construction Pvt. Ltd. Further when assessee as well as Shri Madan Mohan Gupta both were the directors of the said company then except the statement of Shri Madan Mohan Gupta there was no other material or record to establish that the said on money was paid only by the assessee and not by Shri Madan Mohan Gupta or by both or by the company. Therefore this decision of the AO that the on money was paid by the assessee is absolutely based on the statement of Shri Madan Mohan Gupta and since Shri Madan Mohan Gupta was one of the Directors of the said company therefore the possibility of making a self serving statement cannot be ruled out. Accordingly in the absence of giving an opportunity to the assessee to cross examine Shri Madan Mohan Gupta the said finding of the AO is not sustainable in law and in view of the above discussion we hold that the addition made by the AO is not justified and the same is deleted. Addition being on money paid in respect of the land at Jamna Vihar Teelawala - HELD THAT - assessee denied to have entered any transaction of purchase of land from Shri Mool Chand. However the AO without bringing anything on record to disclose any transaction of purchase of land as alleged either by the assessee or by any group company of the assessee has made the addition only on the presumption that when a group concern of the assessee has purchased land in the past then this payment must have been made by the assessee for purchase of land. It is pertinent to note that when the AO has treated this as a payment made by the assessee for purchase of land then in the absence of actual transaction of purchase of land during the year under consideration or even in the subsequent years or in the immediately preceding year the addition made by the AO is absolutely based on assumption of facts without any material disclosing any transaction of purchase of land or payment made by the assessee. Therefore when the document itself does not reveal the transaction of payment by the assessee then the presumption of this fact based on the statement of Shri Madan Mohan Gupta without affording an opportunity to the assessee to cross examine Shri Madan Mohan Gupta the said addition made by the AO is not sustainable. Validity of order passed under section 153A read with section 143(3) - HELD THAT - Since the assessment proceedings for the assessment year under consideration were not concluded but pending as on the date of search therefore the same got abated by virtue of search and seizure action u/s 132. This issue is common as raised by the assessee for the assessment year 2010-11. Accordingly as far as initiation of proceedings for reassessment u/s 153A is concerned the same was valid. The addition made by the AO while framing the assessment are to be dealt with separately in other grounds of appeal Accordingly this ground is decided against the assessee. Addition invoking the provisions of section 50C - objections raised by the assessee against the adoption of the DLC rates of adjoining area - HELD THAT - Since undisputedly the DLC rates for the Keshav Vihar Jaipur were not fixed and therefore not available for the purpose of adopting the same as full value consideration under section 50C of the Act therefore the AO has adopted the DLC rates of adjoining area namely Siddharth Nagar without giving the assessee an opportunity of hearing and defend its case against such adoption of full value consideration. Once the assessee has raised the objection against the adoption of the DLC rates of an adjoining area instead of the area in which the plot in question situated the AO and ld. CIT (A) ought to have referred the matter to the DVO for determination of fair market value of the plot in question which could be taken as full value consideration. Accordingly in the facts and circumstances of the case we set aside the issue to the record of the AO for re-adjudication of the same after making the reference to the DVO regarding determination of fair market value of the plot in question and thereafter after considering the objection if any of the assessee to decide the issue as per law. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147/143(3) of the Income Tax Act, 1961.
2. Substantive and protective additions based on seized documents and statements.
3. Validity of assessments framed under section 153A read with section 143(3).
4. Additions under section 68 of the Income Tax Act, 1961.
5. Application of section 50C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment (AY 2007-08):
The assessee challenged the reopening of assessment under sections 147/143(3), arguing that the reasons recorded by the AO were vague and based on presumption, without credible evidence. The AO initiated proceedings based on seized documents and statements from a search operation, indicating that significant sums were involved in land transactions. However, the Tribunal found that the AO's belief of income escapement was not supported by tangible material, as the entries in the seized documents did not pertain to the assessment year under consideration. The Tribunal quashed the reopening of the assessment as invalid due to lack of concrete evidence, rendering the reassessment unsustainable.

2. Substantive and Protective Additions (AY 2007-08, 2009-10, 2010-11):
The AO made substantive and protective additions based on seized documents and statements from Shri Madan Mohan Gupta, alleging undisclosed income from land transactions. The Tribunal examined the seized materials and found inconsistencies, noting that the transactions recorded did not match the assessment years in question. Furthermore, the Tribunal emphasized the need for tangible evidence directly linking the assessee to the alleged transactions. The Tribunal held that the AO's additions were based on assumptions and lacked corroborative evidence, leading to the deletion of the protective and substantive additions.

3. Validity of Assessments under Section 153A (AY 2009-10, 2010-11, 2011-12):
The Tribunal addressed the validity of assessments framed under section 153A, noting that such assessments are permissible only when incriminating material is found during a search. For AY 2009-10, the Tribunal found that no incriminating material was seized from the assessee, and the additions were based on documents found with Shri Madan Mohan Gupta. The Tribunal emphasized that completed assessments can only be interfered with based on incriminating material. Consequently, the Tribunal quashed the assessments under section 153A for lack of incriminating evidence.

4. Additions under Section 68 (AY 2009-10):
The AO made additions under section 68 based on the same seized documents used for protective additions. The Tribunal noted that the seized documents did not specifically pertain to the assessee and lacked clear evidence of undisclosed income. The Tribunal reiterated that additions under section 68 require concrete evidence of unexplained credits, which was absent in this case. The Tribunal deleted the additions, emphasizing the need for substantive evidence to support such claims.

5. Application of Section 50C (AY 2011-12):
The AO applied section 50C to adopt the full value consideration for a property transaction based on DLC rates of an adjoining area, as DLC rates for the specific area were unavailable. The Tribunal found that the AO did not provide the assessee an opportunity to contest the adoption of rates from a different area. The Tribunal held that in the absence of specific DLC rates, the matter should be referred to the DVO for fair market value determination. The Tribunal set aside the issue to the AO for re-adjudication after obtaining the DVO's valuation, ensuring a fair assessment process.

Conclusion:
The Tribunal's judgment emphasized the importance of tangible evidence and adherence to procedural fairness in tax assessments. The reopening of assessments and additions made by the AO were largely quashed due to lack of credible evidence and failure to follow due process, highlighting the need for concrete and specific incriminating material to support tax claims.